African Petroleum lands funding as it advances farm-out talks for its “big company portfolio”

It’s a real vote of confidence to raise money in current market conditions so the team at Oslo-listed African Petroleum are rightly feeling rather pleased with the company’s recent fundraise. The Australia-based explorer, which was started five years ago to target the emerging West Africa Transform Margin made famous by Tullow Oil and Kosmos’ successes offshore Ghana in 2007, has raised US$12.5 million in a private placement with plans to raise a further US$2.5 million in a subsequent repair offering to satisfy demand from its retail investor base.

The fundraise was welcomed by chief executive Dr Stuart Lake, who joined a year ago at something of a low point for the company as it needed to re-group and re-energise after the initial excitement of 2011, when it made two discoveries in Liberia, dissipated when a third well proved less convincing and a mooted farm-out with PetroChina came to naught.

Since his appointment in February 2014, the company has, Lake tells oilbarrel.com, been rebuilt from the bottom-up and its 2014 goals were all met. These included a new focus on corporate governance, an IPO on the Oslo Axess exchange, acquiring additional 3D data to derisk its acreage, farming down 10 per cent of its CI-509 block offshore Cote d’Ivoire to Buried Hill on a 2 for 1 promote, securing licence extensions where required and getting its Gambian licences re-instated.

“The key thing was the execution and delivery of the new plan in 2014 and we did everything we said we were going to do,” says Lake.

Now, with the fundraise complete, the company is gearing up to deliver its 2015 goals. Key among these is to bring in farm-in partners to fund an ambitious, and potentially transformative, drilling programme over the next 18-24 months.

It has a diverse portfolio spanning five countries – Senegal, The Gambia, Sierra Leone, Liberia and Cote d’Ivoire – with more than 24 drillable prospects on its books and 7.3 billion barrels of net unrisked prospective oil resources.

While it may not seem like a great time to be seeking industry partners for expensive deepwater wildcats in frontier parts of West Africa, Lake is quietly optimistic given the company’s large early mover acreage position along the West African Transform Margin.

This is certainly a prime piece of oil and gas real estate. Activity levels in the region accelerated last year – and the results were world class, with three “billion barrel in place” oil strikes made in adjacent acreage in Senegal (Cairn’s breakthrough FAN-1 and SNE-1 finds) and Côte d’Ivoire (Total).

It’s always useful to get one’s acreage de-risked by someone else’s money and its’ clear that Cairn’s finds in Senegal have created something of a buzz.

“We’ve had a lot of interest in the data rooms since those discoveries,” says Lake, who certainly understands the attractions of this play, having overseen Hess’ exploration campaign in Ghana that racked up seven consecutive discoveries.

With equity positions of 81 per cent to 100 per cent, there’s plenty of flexibility to farm-down in order to get a deal that contributes to back costs and delivers a significant carry on upcoming obligation wells in Cote d’Ivoire, Senegal and Gambia over the next two years. It’s also helpful to be entering those negotiations with the flexibility of an extra US$12.5 million of funding on the balance sheet.

Having spent more than 28 years in the industry with stints at Hess, Apache and Shell, Lake isn’t phased by the slump in the oil price. “I’ve seen these cycles many times before and in some ways this is the perfect time to explore because the costs are right down,” says Lake. “Rigs that were on day rates of US$600,000-US$750,000 are now available for US$300,000-US$400,000 and seismic rates are down by 50 per cent.”

Even with the best will in the world, any discoveries would be at least four years down the line when oil prices will most likely have recovered. And Lake points out that deepwater drilling in West Africa isn’t as challenging or expensive as other areas: “It’s deepwater but it’s benign. There are no hurricanes, no high pressure/high temperatures and because we got in early we have very good fiscal terms.”

Lake is certainly excited by the year ahead and feels the company’s position could prove compelling to those seeking exposure to this exploration hotspot. “The large independents still have a very good appetite to get into the right positions,” he notes. “We have a large company portfolio with a small company mind set.”

For African Petroleum 2015 will be about finding a real large company to take on that portfolio so the small company can start to grow: with the shares already up 50 per cent year-to-date, it’s certainly been a good start.